BANKING COMPETITION AND CAPITAL ACCUMULATION: THE IMPORTANCE OF HOW PROFITS ARE RETURNED

We consider the effects of an imperfectly competitive banking sector on the capital stock in a version of the two-period Diamond OLG model, focusing on how profits are returned. There are two broad alternatives: profits may be taxed and returned to households exogenously as fiscal transfers or endogenously as untaxed dividend payments to the (old) holders of bank equity...